Buy-sell-hold 4/5

Published: 03 June, 2011

“Decking and cladding are two key areas of focus at this time of year,” says Tony Miles, managing director of International Timber.

“The market tends to be fairly consistent in these areas but, as well as maintaining the required stock levels to meet anticipated customer demand. Merchants should have a robust supply chain mechanism in place so they can easily cope with any upturn.

“It is important that merchants are aware of recommended grades for structural components and offer products which meet these requirements.

“With decking and cladding there is an opportunity for merchants to differentiate themselves from competitors by offering more premium hardwoods.

“Merchants’ stock should be proven to be legally verified. Suppliers can offer advice and assistance in this area.”

Phil White, operations manager of Parker Building Supplies, is adamant that the start of the year has not presented any problems for his business. He attributes this happy state of affairs to the number of supply arrangements Parker has established through its membership of the NBG buying group.

Mr White sits on the NBG’s timber committee and is part of a group of purchasers managing a carcassing turnover of around £60m a year.

“Because suppliers get at least a two-year deal before renewal negotiations, we are able to build up a rapport with them. That means they look after us. They have a good idea of what type of stock we take and when we need it. They make sure the stock is available to us as soon as the supplies arrive in the UK,” he says.

Although there have been acknow-ledged timber shortages within the market, Parkers seems to have escaped the brunt of it. “We have had the odd occasion where machined goods of a particular grade were not been available for a short period of time. We then had to make a decision as to whether we could purchase a different grade to fill the gap but we have not been in a situation where nothing has been available,” he explains.

Although timber prices tend to fluctuate, they are not as volatile as the prices of, for example, oil, copper and lead. “We realise that at times we have to absorb increases, while at others we will have to pass them on. We always try to do this in the most stable manner that we can, rather than as a knee-jerk reaction.”

Because Parkers has already purchased its timber requirements for the next six to eight weeks at the original asking prices, it is in the enviable position of being able to wait and see whether prices will even themselves out. When you’re talking about softwood hikes of £10-15m3, that surely, is a blessing.

The margin lowering game is a dangerous strategy Mr White says, often done more by the nationals than by independents. “Nationals, in general, don’t always appear to have the expertise at branch level to fully understand what is going on in the marketplace,” he says.

“They might look at an average cost price on their system and not realise that the product is like gold dust and that it is now much more expensive.

If it’s a good order, they might reduce their margin to make sure they get it, with no thought that replacement stock might cost 25% more.”

Darren Pack of Finnforest.

As an independent, Parkers is in direct competition with all of the nationals in its catchment area. “We just view the nationals as being ‘cyclical’,” Mr White explains. “For some weeks, they will set very low prices that will certainly show them little profit. A few weeks later and their prices for the same products will have risen dramatically. Someone from within has obviously questioned their lack of margin and prices go up and down like a yo-yo!” he quips.

“Our customers need to know that there is a steady, measured approach being adopted by us through the year when they are pricing jobs.”

Through its NBG membership, Parkers is aware of the market situation. This helps the merchant forecast sales going forward.

“We distribute that information to all other NBG members,” he relates. “That way, everyone knows what the deal is, whether they will be charged more for their products later on in the year, whether supplies will be hard to get and if they will need to increase their stock levels.”

Last year, for example, sheet materials were in scarce supply. OSB was also extremely difficult to obtain at times. “We never ran out of products at Parkers,” says Mr White. “Thanks to the good relationships we have with our key suppliers and to our prior knowledge about the market situation.

“Of course, sometimes we have had to pay more – you have to accept the laws of supply and demand,” he comments.

“The price levels however, were not extraordinary when compared to what other people were paying in the marketplace. We always managed to get the products. Due to the deals we had in place, we were able to provide an element of stability that we could then pass on to our customers.”

He hopes that there will be no dramas from Mother Nature this year.

“If the timber distributors think they can get a better price for their materials overseas, they will do so. This always impacts on the UK market. However, thanks to our buying group arrangements, we are covered. We have product in the ground and expect product on the ground throughout the year,” he concludes.

Parkers has had a successful two years. “Because we are firmly entrenched in the South East, we are in a position to take advantage of a very buoyant area with major projects such as the Olympics and the Amex Community Stadium. He concedes that his company is fortunate compared to other areas of the country – “it doesn’t matter how good you are, if the work isn’t there, there’s nothing you can do about it.”

Set up in the early 1980s, Key Building Supplies is an independent builders’ merchant with strong values about its place in the local community. BMN’s Nichola Farrugia spoke to the company as it prepares to open a new store called Key DIY next month.

In the past, very few merchants have felt comfortable selling PVC-U windows and doors, despite it being a lucrative market. However, that’s all set to change as NMBS-approved supplier Crystal Direct is simplifying this process. BMN’s Nichola Farrugia met with Steve Halford, managing director, to find out more.